Question

Retirement plan deductions for my income level

Forum|Forum|5 years ago
February 10, 2021
1 reply
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I'm married filing jointly and I can't figure out whether I should make contributions (or if I can) to 401k accounts and an IRA to maximize my deduction (we have money we are happy to put into retirement accounts). I am retired. My wife got a buyout to "retire" after her employer merged with another company, so our income is $100,000 higher than normal this year. (She stopped working in November)

I have mostly finished my taxes in TurboTax Premier.

Total income is $225K

Taxable income is $175,883.

Already made retirement contributions: my wife contributed $3,063 to her retirement account at work through payroll deductions. Her employer matched $450.

We are both 50+, so including catch-up contributions, the way I read it:

1. I can contribute $26,000 to my 401k (but this is NOT through an employer).

2. My wife can contribute $22,937 to her 401k (same account as the one through her employer, but she no longer works there).

3. I can contribute $7,000 to an IRA.

4. My wife can contribute $7,000 to an IRA.

I am wondering:

A. For each of those 4 contributions, can we make them based on our income?

B. For each of those 4 contributions, will we be able to deduct the full contribution against our taxable income?

Even reading through the IRS table and using Turbo Tax, it is confusing - because Turbo Tax tells me we can contribute $7,000 each and save about $3,100 in taxes, but IRS seems to say if you make over $125,000 modified AGI you can't take the IRA deduction if you are covered by a retirement plan at work. My wife had a 401k until November - I can't find if that means she is or is not covered by a retirement plan at work. If you aren't, no deduction modified AGI is $208,000 (our total income is $225K), but I haven't gotten to the point in my taxes of calculating modified AGI yet - just have the $175K taxable income number from Turbo Tax.

Thoughts? It seems to me if we can contribute $66,000 to retirement funds - we want to do it this year because of the tax bracket we're in.

M

MinhT1

401(k) contributions:

Salary deferrals to a 401(k) can only be made by salary deductions while you are still working. As you are retired and your wife has stopped, you both can no longer contribute to a 401(k) plan.

IRA contributions:

You said that your AGI is $225k. Your modified AGI is usually fairly close to this number. Please read this TurboTax article on how to calculate your MAGI from your AGI.

Your wife is considered as being covered by a retirement plan at work (her 401(k)) and she cannot make a deductible contribution to an IRA as your MAGI exceeds $124k (see this IRS document.

You are retired and could contribute to a spousal but you also are disqualified by your MAGI as it is more than $206k (see this IRS document).

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